Second Price Auctions in Advertising
https://roxot.com/blog/second-price-auctions-potential-gaming-system
This article deals with how web publishers set second price auctions to sell online advertising. The article gives several reasons for the use of auctions in determining advertising on their websites. Firstly, the process is extremely fast: the bids are executed in almost real-time, which allows almost no delay in the user experience with ads on the site. Secondly, the method is very simple, which allows advertisers to bid the value they want and not overbid. Overbidding would cause advertisers to lose money and abandon the platform, which is not good for the website publishers. In second price auctions, as we discussed in class, bidders are incentivized to bid their true values. This is because if they win, they do not have to pay their value, but the value of the second-place bidder. Thus, bidding their true value gives them the best possible payoff. This differs from a first-price auction, where winning bidders must pay their bid. This incentivizes bidding below their true value.
The article talks about issues that cause second-price auctions to fail when implemented in the real world. Any type of auction, even second price auctions, cause bidders to inherently bid below their true value to save money, even though this will not affect the price they pay. Thus, publishers would get less revenue than if everyone bid truthfully. Additionally, it is hard for people to put a price on their true value, which also causes them to not bid correctly for the second price auction. These factors cause there to sometimes be huge disparities between the first and second place bidder, which ends up losing the publisher money. In the real world auctions are much more complex than in an ideal situation, and theories with more variables must be used to predict the behavior of bidders.